Score declines with payoff

[SouthJamaica]

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@Lushi wrote:

The original amount of the auto loan was $35k but $15k at payoff. Student loans approximately $200k originally, but $180k now.

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OK here's what happened.

195k/235k=83%

180k/200k=90%

So your installment loan utilization increased to 90%, which did cause a point loss.

When you get the student loans paid down to 166k, and probably sooner, you'll be back at 83% and have your points back.

If FICO points were your only objective, the better strategy would have been to pay the auto loan down to, say, $1000, rather than zero, and pay $1k towards the student loans, to keep the $35k face amount of the car loan in play, at which point your ratio would have been:

student loans 179k/200k

car loan 1k/35k

aggregate installment loan utilization=180k/235k=76.6%

But of course it's worth the point loss to get that clean title on your car

[Lushi]

Thanks so much! I have a lot to learn here. Ultimately, our goal is to buy a house in the next 12 - months, so I would like to get my score up, and will work on a strategy for that.

[Anonymous]

Man, that's a lot of money in student loans, it may as well be a mortgage!  I guess I was correct in assuming that the utilization on those loans was greater than that of your auto loan. 

There could be a threshold at 90% that once crossed could get you back some points.  You suggested that you were at $180k owed which is exactly 90% of $200k... not sure if you were rounding these numbers off or if they're exact... but my point is that if you haven't quite crossed 90% yet you could see a few points when you do.

I'm pretty sure that the first significant threshold crossed for installment loans is 70%... so on $200k in loans that would be $140k which I would imagine could be a ways away.  Your score will grow in the meantime of course, but there's a chance you won't see much growth from the installment loan being paid down until you get below $140k remaining as at that point you'll have reached "significant installment loan repayment" in the eyes of FICO.

[Anonymous]

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@Lushi wrote:

Thanks so much! I have a lot to learn here. Ultimately, our goal is to buy a house in the next 12 - months, so I would like to get my score up, and will work on a strategy for that.

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Some may not agree with the ever-changing rules of the credit game BUT no one can deny the good feeling that comes along with fully owning a car w/ ZERO monthly car payments.

Also for the future, do keep in mind that FICO 08 (the primary score you see thrown around) is not used for mortage lending.  Check the below myfico link for more details:

http://www.myfico.com/crediteducation/fico-score-versions.aspx

A key takeaway is that these scores may be different...sometimes significantly different.  You may have an excellent FICO 08 score but your FICO 04 might be 50 points lower (or hopefully higher).  IMO, it's worth spending some money to take a glance at your FICO mortage scores to see where you are at on the scale.

[Lushi]

Thank you!

[Lushi]

Thank you, and yes, it is a lot in student loans....